South Korean banks race into Vietnam, drawn by deregulation

SEOUL — South Korean banks are scrambling to expand their presence in Vietnam, betting on the emerging country’s growth potential and its intent to loosen foreign ownership limits.

KEB Hana Bank, South Korea’s second-largest lender by assets, is in talks with Vietnam’s central bank to buy a 17.65% stake in Bank for Investment and Development of Vietnam, a source said. The deal price is expected to reach 30 billion won ($26.6 million).

State Bank of Vietnam, the central bank, owns a 95.28% share of BIDV, the second-largest state-owned bank by assets in the communist-led country.

The central bank “proposed to sell” the stake to KEB Hana, said the source, who requested anonymity.

“The Vietnamese government takes 2018 as a year of banking reform escalation, creating chances for financial institutions such as KEB Hana to invest in the finance sector,” Hue said to Hana Financial Group Chairman Kim Jung-tai at a meeting in Hanoi.

The discussions come as South Korean banks are already making significant inroads. Shinhan Bank, a commercial banking unit under Seoul-based Shinhan Financial Group, recently surpassed HSBC to become the No. 1 foreign bank in Vietnam with $3.3 billion in assets and 900,000 customers.

Shinhan’s acquisition of ANZ Vietnam’s retail unit last year helped to boost the South Korean bank’s position, bringing in the Australian bank’s 95,000 credit card customers.

Analysts say Vietnam’s growth potential and deregulation plans make it an attractive market for South Korean banks.

“Vietnam is the most desirable market among emerging countries,” said Seo Young-soo, an analyst at Kiwoom Securities. “It has more advanced urbanization, and its market is more concentrated compared to Indonesia. Its government-driven economic development model is also familiar [to] South Korean banks, which have grown under the same strategy.”

Total assets held by South Korean banks in Vietnam increased 18.9% in 2017 to $5.7 billion, according to the Financial Supervisory Service, a regulator based in Seoul. The ratio is higher than that of foreign lenders overall, whose combined total assets increased 12.9% to $42 billion during the same period.

Shinhan Vietnam, a subsidiary of Shinhan Bank, accounts for 59.7% of those assets, followed by Woori Bank affiliate Woori Vietnam with 15.5%. Industrial Bank of Korea, KEB Hana and KB Kookmin Bank share the rest.

South Korean lenders’ combined net profit in Vietnam also jumped 28.9% last year to $61 million. Its profits from interests soared 25.6% in 2017 to $135 million.

However, in terms of profitability, South Korean lenders lagged their European counterparts. Shinhan Vietnam’s return on assets was 1.7% in 2017, down from 1.9% a year ago. HSBC’s return was 2.0% in 2017, the same as the previous year, according to FSS data.

More opportunities are expected for financial groups from South Korea and elsewhere as Hanoi plans to loosen regulations on foreign ownership in local banks. Prime Minister Nguyen Xuan Phuc has said that Vietnam is working to ease the foreign ownership limit to attract overseas capital. Vietnam currently caps foreign ownership in banking at 30%, with any single foreign investor restricted to 20%.

The government wants to sell Ocean Bank, one of three lenders nationalized in 2015 due to financial problems. Hanoi also plans to sell a 35% share in Vietnam Bank for Agriculture and Rural Development through an initial public offering by 2020.

South Korea is not alone in seizing these opportunities. Japan’s Mizuho Bank owns a 15% stake in Bank for Foreign Trade of Vietnam, or Vietcombank. Sumitomo Mitsui Banking Corp. holds a 15% share in Vietnam Export Import Bank. Commonwealth Bank of Australia has a 20% stake in Vietnam International Bank.

Analysts say that South Korean banks still have better edge in Vietnam compared to rivals thanks to technology-based services.

“South Korean banks have the upper hand in retail services. They offer convenient mobile banking services based on high technology,” said Seo at Kiwoom.

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